AngioDynamics(ANGO) - 2023 Q1 - Quarterly Report

Part I: Financial Information Item 1. Financial Statements This section presents AngioDynamics' unaudited consolidated financial statements, including operations, comprehensive loss, balance sheets, cash flows, and stockholders' equity, with detailed notes for the three months ended August 31, 2022 and 2021 Consolidated Statements of Operations (unaudited) The company reported a net loss of $13.004 million for Q1 FY2023, a significant increase from the prior year, driven by higher operating expenses despite increased net sales | Metric | Three Months Ended Aug 31, 2022 ($ thousands) | Three Months Ended Aug 31, 2021 ($ thousands) | | :--------------------- | :----------------------------------- | :----------------------------------- | | Net Sales | 81,537 | 76,971 | | Gross Profit | 42,305 | 40,139 | | Total Operating Expenses | 55,606 | 48,239 | | Operating Loss | (13,301) | (8,100) | | Net Loss | (13,004) | (6,972) | | Loss per Share (Basic) | (0.33) | (0.18) | | Loss per Share (Diluted) | (0.33) | (0.18) | Consolidated Statements of Comprehensive Loss (unaudited) Total comprehensive loss increased to $13.554 million for Q1 FY2023, primarily due to a higher net loss and negative foreign currency translation adjustments | Metric | Three Months Ended Aug 31, 2022 ($ thousands) | Three Months Ended Aug 31, 2021 ($ thousands) | | :--------------------------- | :----------------------------------- | :----------------------------------- | | Net Loss | (13,004) | (6,972) | | Foreign Currency Translation | (550) | 590 | | Total Comprehensive Loss | (13,554) | (6,382) | Consolidated Balance Sheets (unaudited) Total assets increased to $557.652 million as of August 31, 2022, driven by current assets and long-term debt, while total liabilities rose and stockholders' equity decreased | Metric | Aug 31, 2022 ($ thousands) | May 31, 2022 ($ thousands) | | :--------------------------- | :---------------- | :---------------- | | Cash and Cash Equivalents | 24,564 | 28,825 | | Total Current Assets | 151,371 | 143,345 | | Total Assets | 557,652 | 552,751 | | Total Current Liabilities | 66,390 | 74,324 | | Long-Term Debt | 49,798 | 25,000 | | Total Liabilities | 143,611 | 128,262 | | Total Stockholders' Equity | 414,041 | 424,489 | Consolidated Statements of Cash Flows (unaudited) Net cash and cash equivalents decreased by $4.261 million for Q1 FY2023, primarily due to cash used in operating and investing activities, partially offset by financing activities | Cash Flow Activity | Three Months Ended Aug 31, 2022 ($ thousands) | Three Months Ended Aug 31, 2021 ($ thousands) | | :--------------------------- | :----------------------------------- | :----------------------------------- | | Operating Activities | (24,745) | (8,904) | | Investing Activities | (3,576) | (9,092) | | Financing Activities | 24,376 | 5,446 | | Effect of Exchange Rate Changes | (316) | (139) | | Net Change in Cash | (4,261) | (12,689) | | Cash at End of Period | 24,564 | 35,472 | Consolidated Statements of Stockholders' Equity (unaudited) Stockholders' equity decreased to $414.041 million as of August 31, 2022, primarily due to net loss and other comprehensive loss, partially offset by stock-based compensation | Metric | May 31, 2022 ($ thousands) | Aug 31, 2022 ($ thousands) | | :----------------------------------- | :---------------- | :---------------- | | Total Stockholders' Equity (Balance) | 424,489 | 414,041 | | Net Loss | (158,413) | (171,417) | | Stock-based Compensation | - | 3,024 | | Other Comprehensive Loss, Net of Tax | - | (550) | Notes to Consolidated Financial Statements (unaudited) This section provides detailed disclosures for the unaudited consolidated financial statements, covering accounting policies, key assets, liabilities, equity, and operational items 1. CONSOLIDATED FINANCIAL STATEMENTS The unaudited interim consolidated financial statements include AngioDynamics and its wholly-owned subsidiaries, with all intercompany transactions eliminated and necessary adjustments made - The interim consolidated financial statements are unaudited and include AngioDynamics, Inc. and its wholly-owned subsidiaries, with all intercompany balances and transactions eliminated[35][36] - Management believes all adjustments (consisting of normal recurring adjustments) necessary for fair presentation have been made[35] 2. ACQUISITIONS On July 27, 2021, the company acquired the Camaro support catheter (Syntrax) for $4.0 million, accounted for as an asset purchase to support the Auryon product family - Acquired the Camaro support catheter (rebranded as Syntrax) from QX Medical, LLC on July 27, 2021[37] - Aggregate purchase price was $4.0 million, including an upfront payment of $3.6 million and $0.4 million in purchase price holdbacks, along with $1.0 million of potential future contingent consideration related to revenue milestones[37] - Accounted for as an asset purchase, recording inventory and fixed assets of $0.1 million and an intangible asset product technology of $3.9 million, amortized over 15 years[37] 3. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue is recognized when customers obtain control of goods, with the company transforming into a focused medical technology entity, disaggregating revenue by Med Tech, Med Device, and geography - Revenue is recognized under ASC 606 when a customer obtains control of promised goods or services, following a five-step process[38] - The Company is focused on transforming into a more focused medical technology company, with growth in the near to mid-term expected to be driven by its Med Tech segment[39] Net Sales by Segment and Geography (Three Months Ended August 31, in thousands) | Category | 2022 ($ thousands) | 2021 ($ thousands) | | :------------- | :-------- | :-------- | | Med Tech | 22,817 | 17,607 | | Med Device | 58,720 | 59,364 | | Total | 81,537 | 76,971 | | United States | 69,023 | 64,464 | | International | 12,514 | 12,507 | Contract Balances with Customers (in thousands) | (in thousands) | Aug 31, 2022 | May 31, 2022 | | :--------------- | :----------- | :----------- | | Receivables | $ 53,586 | $ 52,304 | | Contract assets | $ — | $ — | | Contract liabilities | $ 647 | $ 526 | 4. INVENTORIES Inventories increased to $57.609 million as of August 31, 2022, with raw materials as the largest component, and the inventory reserve slightly increased to $3.8 million Inventories (in thousands) | Category | Aug 31, 2022 | May 31, 2022 | | :-------------- | :----------- | :----------- | | Raw materials | $ 32,474 | $ 28,251 | | Work in process | 8,113 | 7,186 | | Finished goods | 17,022 | 15,955 | | Inventories | $ 57,609 | $ 51,392 | - Total inventory reserve at August 31, 2022, was $3.8 million, up from $3.7 million at May 31, 2022[54] 5. GOODWILL AND INTANGIBLE ASSETS Goodwill is tested annually for impairment, with no impairment found in the Q1 FY2023 interim assessment; definite-lived intangible assets totaled $147.976 million as of August 31, 2022 - Goodwill is not amortized but tested for impairment annually; the assessment date changed from December 31 to April 30[55] - Operations are now managed as two reporting units: Med Tech and Med Device, leading to an interim goodwill impairment assessment as of June 1, 2022, which concluded no impairment[56] Goodwill Allocation by Reporting Unit (in thousands) | Reporting Unit | Balance, June 1, 2022 | Foreign Currency Translation Adjustments | Balance, August 31, 2022 | | :------------- | :-------------------- | :--------------------------------------- | :----------------------- | | Med Tech | $ 160,529 | (20) | $ 160,509 | | Med Device | $ 40,529 | — | $ 40,529 | | Total | $ 201,058 | (20) | $ 201,038 | Definite Lived Intangible Assets (Net Carrying Value, in thousands) | Category | Aug 31, 2022 | May 31, 2022 | | :--------------------- | :----------- | :----------- | | Product technologies | $ 123,489 | $ 127,326 | | Customer relationships | 21,108 | 22,112 | | Trademarks | 2,694 | 2,765 | | Licenses | 685 | 177 | | Total | $ 147,976 | $ 152,380 | - Amortization expense for definite-lived intangible assets was $4.8 million for both three months ended August 31, 2022 and 2021[60] 6. ACCRUED LIABILITIES Accrued liabilities decreased to $25.558 million as of August 31, 2022, primarily due to a significant reduction in payroll and related expenses Accrued Liabilities (in thousands) | Category | Aug 31, 2022 | May 31, 2022 | | :------------------------- | :----------- | :----------- | | Payroll and related expenses | $ 10,109 | $ 20,232 | | Royalties | 1,518 | 2,986 | | Outside services | 5,917 | 3,731 | | Research and development | 1,332 | 1,279 | | Sales and franchise taxes | 938 | 750 | | Rebates | 558 | 511 | | Other | 5,186 | 5,353 | | Total | $ 25,558 | $ 34,842 | 7. LONG-TERM DEBT A new Credit Agreement on August 30, 2022, established a $75.0 million revolving facility and $30.0 million delayed draw term loan, with $50.0 million outstanding as of August 31, 2022 - Entered into a new Credit Agreement on August 30, 2022, providing a $75.0 million secured revolving credit facility and a $30.0 million delayed draw term loan[63][64] - The Credit Agreement has a five-year maturity[65] Long-Term Debt (in thousands) | Category | Aug 31, 2022 | | :---------------------------- | :----------- | | Revolving Facility | $ 25,000 | | Delayed Draw Term Loan | 25,000 | | Less: unamortized debt issuance costs | (202) | | Total Long-Term Debt | $ 49,798 | - Interest rate at August 31, 2022, for both facilities was 4.06%[67] - Includes financial covenants: maximum leverage ratio of 3.00 to 1.00 (or 3.50 to 1.00 after acquisitions) and fixed charge coverage ratio of not less than 1.25 to 1.00[66][67] 8. INCOME TAXES The estimated effective tax rate was 5.5% for Q1 FY2023, with a valuation allowance maintained on deferred tax assets due to lack of sustained profitability - Estimated annual effective tax rate prior to discrete items was 5.5% for Q1 FY2023, compared to 10.6% for the same period in fiscal year 2022[69] - The Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards, and other net deferred tax assets due to not yet attaining a sustained level of profitability[71] 9. SHARE-BASED COMPENSATION Share-based compensation expense increased to $3.0 million for Q1 FY2023, with $27.1 million of unrecognized expense remaining under the 2020 Stock and Incentive Award Plan - Share-based compensation expense was $3.0 million for the three months ended August 31, 2022, compared to $2.4 million for the same period in 2021[73] - Awards are granted under the 2020 Stock and Incentive Award Plan and an employee stock purchase plan[72][73] - As of August 31, 2022, there was $27.1 million of unrecognized compensation expense related to share-based payment arrangements, expected to be recognized over approximately two years[75] 10. EARNINGS PER SHARE Basic and diluted loss per share were $(0.33) for Q1 FY2023, with dilutive securities excluded from EPS calculation due to the net loss Loss Per Share (in thousands, except per share data) | Metric | Three Months Ended Aug 31, 2022 | Three Months Ended Aug 31, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Basic Loss per Share | $ (0.33) | $ (0.18) | | Diluted Loss per Share | $ (0.33) | $ (0.18) | | Weighted Average Shares Outstanding (Basic) | 39,302 | 38,734 | | Weighted Average Shares Outstanding (Diluted) | 39,302 | 38,734 | - Securities (3,821 thousand in 2022, 3,443 thousand in 2021) were excluded from diluted EPS computation as their inclusion would be anti-dilutive due to the net loss[76][77] 11. SEGMENT AND GEOGRAPHIC INFORMATION Effective Q1 FY2023, operations are managed under Med Tech and Med Device segments, with total net sales increasing to $81.537 million, driven by Med Tech growth - Commencing with the first quarter of fiscal year 2023, the Company began to manage its operations through two segments, Med Tech and Med Device, to align with its transformation into a focused medical technology company[78] Net Sales and Gross Margin by Segment (in thousands) | Segment | Three Months Ended Aug 31, 2022 | Three Months Ended Aug 31, 2021 | | :----------------- | :------------------------------ | :------------------------------ | | Med Tech Net Sales | $ 22,817 | $ 17,607 | | Med Tech Gross Profit | $ 14,429 | $ 11,517 | | Med Tech Gross Margin | 63.2 % | 65.4 % | | Med Device Net Sales | $ 58,720 | $ 59,364 | | Med Device Gross Profit | $ 27,876 | $ 28,622 | | Med Device Gross Margin | 47.5 % | 48.2 % | | Total Net Sales | $ 81,537 | $ 76,971 | | Total Gross Profit | $ 42,305 | $ 40,139 | | Total Gross Margin | 51.9 % | 52.1 % | Net Sales by Geographic Area (in thousands) | Geographic Area | Three Months Ended Aug 31, 2022 | Three Months Ended Aug 31, 2021 | | :-------------- | :------------------------------ | :------------------------------ | | United States | $ 69,023 | $ 64,464 | | International | 12,514 | 12,507 | | Total | $ 81,537 | $ 76,971 | - International sales as a percentage of total net sales were 15.3% for the three months ended August 31, 2022, down from 16.2% in the prior year[82] 12. FAIR VALUE Fair value measurements, primarily for contingent consideration, increased to $17.158 million as of August 31, 2022, driven by changes in estimated earn-out payments - The Company's recurring fair value measurements using significant unobservable inputs (Level 3) relate to contingent consideration liabilities for acquisition earn-outs[84][86] Fair Value of Contingent Consideration for Acquisition Earn Outs (in thousands) | Date | Fair Value | | :------------- | :--------- | | Aug 31, 2022 | $ 17,158 | | May 31, 2022 | $ 16,948 | - The change in fair value of contingent consideration for the three months ended August 31, 2022, was $211 thousand, related to the Eximo contingent consideration[87][138] - The amount of undiscounted future contingent consideration expected to be paid is approximately $20.0 million, with milestones ranging from fiscal years 2023 to 2029[91] 13. LEASES Operating lease liabilities totaled $6.596 million as of August 31, 2022, with a weighted average remaining term of 3.06 years and a discount rate of 3.8% Lease Information (in thousands) | Metric | Aug 31, 2022 | May 31, 2022 | | :----------------------------- | :----------- | :----------- | | Operating Lease ROU Asset | $ 6,335 | $ 6,974 | | Total Lease Liabilities | $ 6,596 | $ 7,263 | - Weighted average remaining lease term was 3.06 years and weighted average discount rate was 3.8% as of August 31, 2022[94] Cash Flow from Operating Leases (in thousands) | Metric | Three Months Ended Aug 31, 2022 | Three Months Ended Aug 31, 2021 | | :------------------------- | :------------------------------ | :------------------------------ | | Cash paid for operating leases | $ 691 | $ 682 | 14. COMMITMENTS AND CONTINGENCIES The company is involved in various legal proceedings, including patent infringement suits, with no expense recorded for potential losses due to uncertain outcomes - The Company is involved in various legal proceedings, including commercial, intellectual property, product liability, and regulatory matters[98] - Multiple patent infringement suits with C.R. Bard, Inc. are ongoing; the Company believes these claims are without merit and has not recorded an expense as a potential loss is not yet probable or reasonably estimable[99][101][102] - In a separate action initiated by AngioDynamics, a jury verdict on October 6, 2022, found C.R. Bard, Inc. did not restrain competition in violation of federal antitrust laws[103] 15. ACQUISITION, RESTRUCTURING, AND OTHER ITEMS, NET Acquisition, restructuring, and other net items increased to $5.581 million for Q1 FY2023, primarily due to a $3.5 million prepayment to the Israeli Innovation Authority Acquisition, Restructuring and Other Items, Net (in thousands) | Category | Three Months Ended Aug 31, 2022 | Three Months Ended Aug 31, 2021 | | :------------------------------------- | :------------------------------ | :------------------------------ | | Legal | $ 1,863 | $ 2,084 | | Manufacturing relocation | 136 | — | | Israeli Innovation Authority prepayment | 3,544 | — | | Other | 38 | 356 | | Total | $ 5,581 | $ 2,440 | - The $3.5 million payment to the Israeli Innovation Authority fully satisfied the obligation related to grant funds for the Auryon laser development prior to its acquisition[105][138] 16. ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income decreased to $807 thousand as of August 31, 2022, primarily due to a $550 thousand foreign currency translation loss Changes in Accumulated Other Comprehensive Income (in thousands) | Metric | Balance at May 31, 2022 | Other Comprehensive Loss, Net of Tax | Balance at August 31, 2022 | | :----------------------------------- | :---------------------- | :----------------------------------- | :------------------------- | | Foreign Currency Translation Income | $ 1,357 | (550) | $ 807 | 17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS ASU 2021-10 (Government Assistance) was adopted in Q1 FY2023 with no material impact, and ASU 2021-08 (Business Combinations) is expected to have no material impact upon adoption in Q1 FY2024 - ASU 2021-10, Government Assistance, was adopted in Q1 FY2023 and did not have a material impact on the consolidated financial statements[108] - ASU 2021-08, Business Combinations, will be adopted in Q1 FY2024 and is not expected to have a material impact[109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews AngioDynamics' financial performance for Q1 FY2023, highlighting increased net sales, a higher net loss due to operating expenses, strategic segment shifts, and liquidity - AngioDynamics is a leading medical technology company focused on restoring healthy blood flow, expanding cancer treatment, and improving patient quality of life[115] - The Company is undergoing a transformation from a broad portfolio to a more focused medical technology company, managing operations through two segments: Med Tech and Med Device[115][120] Key Financial Metrics (Three Months Ended August 31, $ millions) | Metric | 2022 ($ millions) | 2021 ($ millions) | % Change | | :--------------------- | :-------- | :-------- | :------- | | Revenue | 81.5 | 77.0 | 5.9% | | Med Tech Growth | 29.6% | - | - | | Med Device Decline | (1.1)% | - | - | | Gross Profit % | 51.9% | 52.1% | (0.2)% | | Net Loss | (13.0) | (7.0) | 85.7% | | Loss per Share | (0.33) | (0.18) | 83.3% | - Med Tech revenue grew 29.6% driven by Auryon, thrombus management platform, and NanoKnife disposables, while Med Device revenue declined 1.1% due to backlog in Vascular Access products and reduced Oncology procedure volumes[122][126][127] Operating Expenses (Three Months Ended August 31, in thousands) | Expense Category | 2022 | 2021 | % Change | | :--------------------------- | :------ | :------ | :------- | | Research and development | 8,333 | 7,394 | 12.7% | | Sales and marketing | 26,543 | 24,446 | 8.6% | | General and administrative | 10,101 | 8,943 | 12.9% | | Amortization of intangibles | 4,837 | 4,821 | 0.3% | | Acquisition, restructuring and other items, net | 5,581 | 2,440 | 128.7% | - The Company's current cash on hand and availability under its new Credit Agreement ($75.0 million Revolving Facility and $30.0 million Delayed Draw Term Loan) provide sufficient liquidity for at least the next 12 months[141][146][147] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, interest rate risk on its variable-rate Credit Agreement, and manages credit risk through diversification - The Company is exposed to foreign currency exchange rate risk, with approximately 6% of sales denominated in foreign currencies (Euro, British Pound, Canadian Dollar) for the three months ended August 31, 2022[151][152] - A strengthening U.S. Dollar negatively impacts sales and gross profit due to lower foreign currency denominated expenses relative to sales[152] - Interest rate risk arises from the variable interest rates on the Credit Agreement, which includes a $75.0 million Revolving Facility and a $30.0 million Delayed Draw Term Loan[151][153] - As of August 31, 2022, $25.0 million was outstanding on both the Delayed Draw Term Loan and the Revolving Facility, with an interest rate of 4.06%[153] - Concentration of credit risk is limited due to maintaining cash at various institutions, structuring the Credit Agreement across three banks, and having a large number of customers with no single customer representing more than 10% of total sales[154][155] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of August 31, 2022, with no material changes in internal control over financial reporting during the quarter - Management, under the supervision of the CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective as of August 31, 2022[157] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended August 31, 2022[158] Part II: Other Information Item 1. Legal Proceedings For detailed information on legal proceedings, refer to Note 14 "Commitments and Contingencies" in the consolidated financial statements - For information on legal proceedings, refer to Note 14 "Commitments and Contingencies" in the consolidated financial statements[161] Item 1A. Risk Factors Refer to the annual report on Form 10-K for risk factors; no material changes have occurred since the May 31, 2022, fiscal year-end - Refer to "Part I, Item 1A. Risk Factors" of the annual report on Form 10-K for the fiscal year ended May 31, 2022, for information on important risks and uncertainties[162] - There have been no material changes to the risk factors previously disclosed in the annual report on Form 10-K[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 32,309 shares of common stock at an average price of $21.07 to satisfy tax withholding on equity awards, not under a public program Common Stock Repurchases (Three Months Ended August 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------- | :------------------------------- | :--------------------------- | | June 1, 2022 - June 30, 2022 | 1,400 | $ 19.30 | | July 1, 2022 - July 31, 2022 | 30,909 | $ 21.15 | | August 1, 2022 - August 31, 2022 | — | $ 23.31 | | Total | 32,309 | $ 21.07 | - Shares were purchased from employees to satisfy tax withholding requirements on the vesting of restricted shares/units from equity-based awards[164] - The Company does not currently have a publicly announced share repurchase program in effect[164] Item 3. Defaults on Senior Securities No defaults on senior securities were reported during the period - No defaults on senior securities were reported[165] Item 4. Mine Safety Disclosures No mine safety disclosures were reported during the period - No mine safety disclosures were reported[165] Item 5. Other Information No other information required for disclosure under this item was reported - No other information was reported[165] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including the Credit Agreement, various certifications, and XBRL-related documents - Key exhibits include the Credit Agreement dated August 30, 2022, certifications pursuant to Rule 13a-14(a) or 15d-14, and certifications pursuant to Title 18, United States Code, Section 1350[168][169][170][171][172] - XBRL Schema, Calculation Linkbase, Taxonomy Extension Definition Linkbase, Labels Linkbase, and Presentation Linkbase Documents are also filed as exhibits[173][174][175]